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Net Working Capital - Bank Overdraft included?

Financial Management

Following information has been provided from the books of M/s Laxmi & Co. for the year ending on 31st March, 2020: Net Working Capital ` 4,80,000 Bank overdraft ` 80,000 Fixed Assets to Proprietary ratio 0.75 Reserves and Surplus ` 3,20,000 Current ratio 2.5 Liquid ratio (Quick Ratio) 1.5 You are required to PREPARE a summarised Balance Sheet as at 31st March, 2020 In the answer (see page 6 of the PDF attached below) they have arrived at Current Liability as 3.2L by using the net working capital figure and current ratio. However, a Bank Overdraft of 80,000 is there, and ICAI material (Page 3.8) has mentioned that in Net Working Capital, Current Liabilities excludes short term bank borrowings, which a bank overdraft is, right? So shouldn't we equate Current Assets - Current Liabilities with Net Working Capital + Bank Borrowings, to adjust for the exclusion?

4fa2791c37394bd99ce03cadb9797b4d.pdf

Vishnu Muraleedharan

CA Final

★ 32K+

07-Oct-24 16:50

508

Answers (2)

Best Answer

Per icai NWC excluded OD yes If you wish to exclude OD from CL then formula should be as you pointed out. You can make that assumption and solve the question

Sriram Somayajula

Admin

07-Oct-24 17:29

Sriram Somayajula Admin

Per icai NWC excluded OD yes If you wish to exclude OD from CL then formula should be as you pointed out. You can make that assumption and solve the question

Ok sir, thank you so much!

Thread Starter

Vishnu Muraleedharan

CA Final

★ 32K+

07-Oct-24 19:25

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